Steel Stocks Outlook: Seen down next week tracking broad indices

[B. Karthick]

Steel Stocks Outlook: Seen down next week tracking broad indices

Steel shares next week are likely to reflect the gloomy sentiment
in the
global capital markets arising from high crude oil prices and the
continuing
economic slowdown in the U.S.
India's headline inflation, measured by the Wholesale Price Index,
yesterday surged to a seven-year high of 8.75%.
Economists are forecasting that inflation could cross the 10% mark,
sparking fears the government may be readying to take some drastic
measures
to control the situation.
In one such move, the Reserve Bank of India Wednesday raised the
cash
reserve ratio for banks by 25 basis points to 8% to soak some
liquidity from
the banking system.
"While inflation is running high primarily due to high commodity
prices
globally, this hike may help temper inflationary expectations due to
second
round impact of fuel price hike," Abheek Barua, chief economist, HDFC
Bank,
said, reacting to the development.
A number of banks and financial institutions, including Housing
Development Finance Corp. and Kotak Bank, have said the provision for
more
cash reserves may force them to raise lending rates. Some others said
they
are watching the situation.
Lending rates are already high, and further upward revision is bad
news
for the steel industry.
It will shrink demand from automobiles and construction sector.
We discounted the scrapping of export duty on flat steel products
and imposition of 15% ad valorem export duty on iron ore, saying the
market
had already factored these into the prices.
However, some fresh news on the duty front may drag down steel
stocks
further.
The government raised the export duty on long steel products from
10% to
15% and put new specific duties on passenger vehicles over 1500 cc.
"This will mean that demand from the automobiles sector will
further dip,
while price rationalisation in export market for long products will
fall,"
rued a steel company official.
Due to high international prices, and strong demand in West Asian
and
South East Asian markets for long products, which are used for
construction,
many Indian companies are finding it beneficial to export despite the
duty.

Week-on-week closing prices of key steel companies' shares, in
rupees, on
National Stock Exchange:

Company Closing Level Closing Level % Change
Jun 13 May 30

Steel Authority 159.20 153.55 3.7%
Tata Steel 841.00 824.15 2.0%
JSW Steel 947.55 1,083.65 - 12.6%
Jindal Steel & Power 2,094.65 2,155.85 - 2.8%

Nifty 4517.10 4627.80 - 2.4%
Sensex 15189.62 15572.18 - 2.5%

End

B.Karthick,
Research Analyst.